Bank of America announced Thursday morning it has agreed to pay a record $16.65 billion to resolve claims of financial fraud in the sale of toxic mortgage-backed securities during the years leading up the financial crisis.
The settlement, which comes after months of reportedly heated negotiations, is the largest civil settlement with a single entity in the history of the United States, eclipsing last year's record-setting $13 billion agreement between the Justice Department and JPMorgan Chase. That settlement was over similar matters.
According to the announcement, BofA has agreed to pay a total of $9.65 billion in cash to the Justice Department, various federal regulators, and the states of California, Delaware, Illinois, Kentucky, Maryland, and New York.
The remaining $7.0 billion will come in the form of consumer relief, including mortgage modifications, community stabilization efforts, and enhanced efforts to lend to low- and moderate-income communities.
The agreement releases the megabank from a number of current and potential claims over its securitization of bad mortgages, including allegations that it was aware the loan underlying the securities were bad and that it knowingly misrepresented those mortgages when they were sold.
It also releases the bank from certain claims related to violations of underwriting guidelines in its production of loans insured by the Federal Housing Administration (FHA).
In a statement, BofA noted the claims against the bank primarily focused on conduct that occurred at Countrywide and Merrill Lynch before its acquisition of the two companies. The statement adds that the settlement is expected to cut BofA's third-quarter pretax earnings by $5.3 billion.
"We believe this settlement, which resolves significant remaining mortgage-related exposures, is in the best interests of our shareholders, and allows us to continue to focus on the future," said CEO Brian Moynihan.
The agreement marks one of the last major legal hurdles BofA has had to clear this year. In July, the firm announced a year-over-year decline in second-quarter profits, largely due to litigation expenses related to legacy mortgage problems. That was followed up weeks later by a ruling that the bank must pay $1.3 billion in a fraud case related to problem loans originated by Countrywide.
In its announcement on Thursday, BofA said it has reviewed the court ruling in the fraud case and intends to file an appeal.